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Monday, 19 November 2012

The Problems: 1. Chronic high unemployment and underemployment2. Chronic income erosion and downward social mobility3. Crisis of Democracy

1. High rate of structural unemployment (chronic unemployment) on a world scale, but especially in developed nations where historically (from the 1950s until the stock market collapse of October 1987) they did not confront such a problem. Within this framework, it must be added that the rate of underemployment (part-time, seasonal, limited contract employment) as well as youth unemployment and underemployment skyrocketed. This poses not just an economic problem, but a social and political one as well.

2. Gradual drop of income from the middle and working class from the 1980s to the present. This is accompanied by a continued higher rate of college graduates unable to experience upward socioeconomic mobility that presumably college degree guarantees and politicians and businesses promote as the panacea. In fact, the problem today in many advanced capitalist countries is too many college graduates chasing too few jobs, and this includes graduates with advanced degrees in most fields. The question of disequilibrium between the college-educated class and the jobs available in the actual economy poses a challenge for the political and socioeconomic elites that forge policy and present it as the solution to achieving upward social mobility.

3. Can any society, especially a pluralistic society sustain itself for very long without addressing the problems of high structural unemployment and the downward mobility of the middle classes and workers, or can it expect social revolution at some point? Why is revolution possible across Muslim countries where armed rebels receive weapons from Western countries, but eventually in the Western countries where democracy is eroding?This is not to say that social discontinuity as it took place during the period from 1350 to 1650 is around the corner, but the crises I have outlined above will hasten such a process.

Global Unemployment

In January 2012, the UN's Internal Labor Organization (ILO) noted that despite the moderate recovery from the economic recession of 2008-2011, there were 27 million unemployed than before the crisis that banks and financial firms precipitated. Given that 2012 was a year of very serious financial problems across southern Europe, causing a eurozone economic crisis, combined with a global slowdown in India, China and the rest of the world, structural unemployment is likely to rise for the next five years and remain high for at least a decade, in the absence of radical state intervention.

This is especially true if we consider:
1. 2013 will be a very difficult recessionary year for the entire world, and it will likely continue well into 2014, for much of the world;
2. Global youth unemployment is at 13% according to the ILO, but that number according to BBC research is very low. Not only is the rate of unemployment calculated of those actively seeking work, thus excluding those that stopped trying, but it also factors in the total population that includes the underemployed in order to calculate the rate of unemployed. In any case, the Middle East and North Africa, where Arab Spring has been in the headlines, leads the world in youth unemployment withe 27%. Shockingly, the EU and developed economies rank second worldwide in youth unemployment at 18% and expected to rise above 20%, with southern Europe suffering near 50% youth unemployment. 2013 will be a year much worse than 2012 for the EU because:
A) Spain will need in the neighborhood of half a trillion euros - banking system and public sector (debt service and fiscal operations);
B) Portugal and Greece will probably need between 200 and 300 billion euros for same reasons as Spain, but also in possible new 'hair cuts' and/or new extensions of existing debt service;
C) Italy's 10-year bond is under 5% today, and Italian investors command 8 trillion euros representing more than 4 times the public debt that is at 120% of GDP. However, Italian austerity measures contribute to continued rising unemployment currently at 11% with young unemployment above 30%.
D) France is likely to sink into recession and face debt difficulties amid austerity, also translating to higher unemployment and further budgetary cuts resulting in lower GDP growth;
E) Germany will probably experience a GDP drop in the second half of the year, dragging down farther the rest of EU;
F) Debt-to-GDP ratio for the eurozone rose from 54% in 2001, 59% in 2008, 80% in 2009 to 94.5% in 2013. Given that US debt-to-GDP ration is at 100% and Japan's twice the US rate, the eurozone is not in as bad shape as it seems. However, there is a huge difference comparing sovereign nations with a monetary union bloc, though in all cases it does mean that structural fiscal and monetary problems will result in much higher chronic unemployment and lower incomes for middle class and workers. In the absence of a liberal monetary policy that Germany and a few other nations following its lead strongly resist, at least until the 2013 election in Germany, all of the above point to structural unemployment hitting a new record across Europe, dragging down the rest of the world economy.

The
eurozone's combined debts are equal to about 93 per cent of the
region's gross domestic product this year and that figure is forecast to
rise to peak at 94.5 per cent next year. In 2009, the eurozone's
debt-to-GDP ratio was 80 per cent. A ratio above 90 per cent is
generally considered high and can put pressure on governments' borrowing
costs.

Role of the State and International Agencies
Are 'pure market forces' solely responsible for the rise in structural unemployment? NO! The role of government, pressured by large corporations, especially banks, and by the IMF, World Bank, European Central Bank, FED, and other central banks have been advocating lower wages and higher unemployment to reduce production costs; a theory based on the assumption that surplus capital would then flow toward the 'new investment sector'; a theory very far from reality, as those who have studied economic history know.

In all countries where the IMF has been operating it has been advising cutting the public sector workforce, lowering wages and benefits in both public and private sectors, ending collective bargaining, and weakening trade unions that are invariably linked to political parties, and in many case union bosses are corrupt and part of the problem. The main argument that both the state and international agencies use as they pursue neo-liberal policies driving unemployment higher is it is all in the name of making the economy competitive, meaning labor costs as low as possible, short of causing social and political upheaval.

Despite the lofty rhetoric about corruption, neither the IMF nor the World Bank actually base policy on the high level of corruption in the public sector, least of all defense where most of the corruption takes place, and they do absolutely nothing to encourage the reduction of massive corruption in the private sector - from corrupt banks and offshore companies to corrupt multinational corporations greasing palms to secure deals with governments.

The fact that the parasitic nature of capitalism has reached astronomical levels. Although the percentage of the world's GDP representing official and private sector corruption cannot possibly be accurate, estimates range from a low of 5% to as high as 15%. Public and private sector corruption is an integral part of capital concentration that contribute to higher structural unemployment, and lower living standards for the middle class and workers, while reinforcing the view that democracy is just a word operating against the reality of a socially unjust oligarchic system.

Jobless Recovery
Are there prospects for lower unemployment five to eight years from now? Yes, but structural unemployment will likely remain at historic highs. Owing to rapid advances in science and technology as well as massive transfer of jobs from West to East and from the northern to the southern hemisphere, the recovery will not bring along with it sharp reduction in unemployment (the jobless recovery phenomenon will prevail) and there will be no corresponding income rise owing to high structural unemployment. The jobless recovery is a reality not just in the US as the FED chair has admitted, but across the world, with exceptions in the BRIC (Brazil, Russia, India, China) nations, although the double-dip recession the world in currently experiencing has impacted BRIC economies as well.

Labor Supply-Job Demand Asymmetry
It has been argued for many decades that job hunters lack the proper training and that is the reason for their lack of employment. It is true that science and technology contribute to a changing market economy, but not nearly as much as government policies and corporation relocating to the lowest cost markets possible, and then expecting that a worker in Detroit or Hamburg retrain to chase the very limited jobs available in the area. It is true there is an asymmetry between the available labor force, which is highly-educated in most of the northern hemisphere nations, does not reflect the realities of the economy. In short, there is a considerable surplus professional labor force when there is no corresponding demand. This asymmetry will likely continue for at least a decade, pending changes in public policy.

Income erosion

I have written a number of essays on the blog regarding income erosion from 1980 to present across the Western World, while income concentration has also been taking place. Watching a recent conference with the IMF Managing Director, German and Indian finance ministers, I was amazed when the chief economist of CITI group stated that the greatest challenge of governments is to forge a policy mix that restores the middle class which has been eroding in the past decades.

Let us take the example of one company that has been in US headlines.
2004: HOSTESS files for bankruptcy; workers agree to $110 million in cuts, but the management doe not reinvest the savings back into the company;
2011: one private Equity Fund, and two Hedge Funds take over the company and sink it into deep debt, just as it has reemerged from bankruptcy, while at the same time demanding more concessions from labor.
2012: HOSTESS cut the pay of its workers wages (average of $20 per hour) by 8% and benefits by 32%, quit paying $160 million into workers' pension, while management gave itself a 60% pay hike and the CEO's pay rose 300%, from $750,000 to $2.5 million. The factory opted closing down, blaming workers for not accepting more cuts! This case is but one of countless similar to it, and the question is where is capitalism headed under such a model of hedge and equity funds raiding companies and undermining society as though it is a motion picture - WALL STREET?

The
eurozone's combined debts are equal to about 93 per cent of the
region's gross domestic product this year and that figure is forecast to
rise to peak at 94.5 per cent next year. In 2009, the eurozone's
debt-to-GDP ratio was 80 per cent. A ratio above 90 per cent is
generally considered high and can put pressure on governments' borrowing
costs.

Small enterprises effaced
It is the law of the market economy to eliminate or weaken smaller and weaker enterprises as the market economy expands and especially amid contracting cycles. The assumption is that firms unable to best serve the market place in terms of providing the best (desirable by the consumer base) product/service at the most competitive price possible cannot survive because of capitalism's competitive nature. To some extent this has always been the case, but this theory of free enterprise assumes that public policy making plays no role - everything from labor policy, to trade and fiscal policy that in essence is a means of redistributing wealth. In point of fact, the role of the state has always been the catalyst and not nearly as much the 'free market', which has never been free of influences by the state.

Small businesses are defined differently in the US than they are in the rest of the world, considering that a small business in the US could very easily pass for a mid-sized one in Spain or Taiwan, while the same small business could also pass for a fairly large one in Portugal or Malaysia. Where the state in South Korea has opted to carve policies favoring large-scale enterprises, Taiwan by contrast tried a more balanced policy (mainly fiscal) approach that preserved small businesses operating alongside larger domestic and foreign companies.

Small businesses have been significant in the evolution of capitalism, especially in the less developed countries where the labor force is mostly engaged in family-type businesses and small-scale agriculture. In conventional economic thinking it would seem unthinkable to have two-three thousand automakers in the US, Japan and Western Europe, instead of a handful. It would be unthinkable to have two-three thousand telephone companies, etc., and all because the assumption is that concentration and centralization of production equals: 1. lower production costs; 2. lower consumer costs; 3; lower product cost to consumer

The evolution of capitalism necessarily entails greater concentration and centralization of production, thus the increasing effacing of family-owned and small businesses in favor of larger ones. But what if the "invisible hand" is not the catalyst to this process? What if the key is the role of the state and the policies it forges to eliminate small businesses while strengthening larger ones?

Government’s role in this is to provide assistance
in the form of policy and change in regulatory framework. Where relevant, additional
funding and investments are put forward to pave the way for projects. It is obvious even to a non-expert that when the state adopt a tax system intended to burden small businesses out of existence so that they make room for larger enterprises the invisible hand is no longer invisible. This is the case today through IMF-World Bank policy around the world. The logic is that bigger is better, cheaper, more efficient, etc. But is it not the case that the big banks and financial firms created the global economic crisis of 2008-present? Moreover, can large enterprises solve the problems of chronic unemployment and declining incomes?

Persistence of monetarism by Western neo-liberals
Beside the fact that money is the asset they hold and do not wish for it to lose value, there is the reality that the US, Japan and northwest Europe will suffer a reduction in their share of global economic output in the course of the 21st century, while Asia will see its share rise sharply. This according to the OECD that sees the current developed nations losing half of their global share. The estimates are not as significant as the reality that this is Asia's century, and one way Western neo-liberals are fighting back is by lowering labor costs sharply, thus transforming Western societies more radically than has been the case since the Great Depression.Crisis of Democracy

There are obvious threats to democracy from high structural unemployment and downward income trends for the middle class and workers:
1. Higher social instability in the form of crime;
2. Higher rate of mass protests and demonstrations;
3. Higher level of cynicism and loss of confidence in democratic institutions;
4.Higher level of poverty and growing gap between poor and rich, projecting the image that society belongs to political and socioeconomic oligarchs;
5. Higher sense of 'dependency' (semi-colonial status) by those living in developing or semi-developed nations. The perception that the fate of the poorer and weaker nations is determined by the rich nations is not only very high among Africans, Latin Americans and many Asians, but even Southern and Eastern Europeans as well.

Unemployment is the highest in five decades and unlikely to come down dramatically in this decade. Can capitalism create at least 600 million jobs in the 2010s to meet the growing demands of a rising population, while securing the existing political economy and institutions? My guess is that it is indeed possible for capitalism to meet the demands of the job market with good living wages well above subsistence levels, but it is not nearly as profitable to do so.

Therefore, we are much more likely to see:
1. escalations of regional conflicts, backed or directly involving US and/or NATO as well as Israel, as the ultimate distraction for the masses to rally behind their national flags;
2. escalated rhetoric regarding terrorism threat to national security;
3. escalated rhetoric regarding the dangers of any progressive political party or movement advocating a systemic change in policy away from the neo-liberal model and corporate welfare capitalism.
4. political polarization and people seeking solution outside political parties, trade unions, schools, churches, and other established institutions.

It is ironic that while the NATO allies have been selectively assisting Muslim rebels to bring down authoritarian regimes in the name of freedom and democracy, the same Western regimes have been undermining democracy in their own countries as well as in those countries where the US and EU have been imposing austerity measures through the IMF.

Saturday, 10 November 2012

Although the concept of civil society is ancient, it became popular
with academic, media and political circles during the late 1980-early1990s,
especially in the US, a period that coincided with the fall of Communism and the simultaneous rise of globalization under the neo-liberal model. For the most part, Western analysts of 'civil society' equated the concept with globalization under the neo-liberal ideology with the intent of applying the concept to the former Communist bloc and non-Western countries targeted for economic integration and geopolitical alliances.

That civil society became one that the World Bank and UN embraced signaled the co-optation and narrow definition of the concept by mainstream institutions; thus the interest in the subject by think tanks, academics, journalists, politicians, and other advocates of the status quo parading as 'reformers', always from within the system. In July 2005, the UN established a General
Trust Fund, "supported by 36 Member States, its chief function is funding
projects that strengthen the voice of civil society in democratic
processes around the world. The large majority of UNDEF funds go to
local civil society organizations -- both in the transition and
consolidation phases of democratization."

The assumption on the part of Westerner analysts was that they lived in 'civil societies', while Africa, much of Asia, Eurasia and Latin America were transitioning from authoritarian or semi-authoritarian regime to a pluralistic one. Therefore, the latter needed to operate under a Western-style 'civil society' model. In essence, this was merely a veneer to present the West as operating under civil society as narrowly defined under globalization and neo-liberalism, and to argue in favor of a global integration model that the rest of the world must accept in order to lift itself ideologically and politically to the level of the West, especially the US, but northwest Europe as well.

While few would argue against the socially-just goals of civil society, the question is whether the concept as narrowly defined by Westerners and pro-Westerners is simply intended to serve the goals of the ideological, political economic and social institutional structure. Moreover, there is the question of the degree to which the US as the backbone behind pro-West 'civil society' projects is itself a violator of civil liberties and human rights as many organizations and individual lawyers and scholars have argued in the last decade. Considering that the US has been operating under the Patriot Act since 2001, there is a debate about the degree to which the US is a 'democracy' (comparable to Norway) or more of a quasi-police state with a Constitution. If the latter is closer to the truth, there is a serious credibility issue regarding 'American exceptionalism' invoked once again even in the civil society debate.

Does civil society exist only to serve ideological/political/economic/social agendas; is it real only in theoretical frameworks where the subjective mind loses itself in utopian thought; has 'civil society' ever existed and can it be possible in the absence of social justice, civil rights and human rights? In the early 21st century, is civil society possible across much of the world, from the US to EU, from the Islamic world to East Asia and Eurasia; in all cases where the evidence clearly illustrates that there is substantial socioeconomic polarization, reflected in the political arena, both legitimate and underground? To answer this question, we need to examine from a synoptic perspective some aspects of the issue, from philosophical and historical to political and sociological.

DEFINING 'CIVIL SOCIETY'

One definition of 'civil society' is the activity of the organized public domain (NGOs) operating separately from both the state and the market. Before answering the question of NGO funding that reveals who is really behind causes allegedly representing the 'public interest', it should be noted that civil society assumes a non-governmental organization (s) has as its goal to protect and promote people's welfare (interests) as well as promoting fundamental civil and human rights.

It is futile to search for a single definition of 'civil society' for it has changed from ancient Greek times to the modern period. Short of various descriptions and characterizations, there is no coherent definition, thus permitting the analyst to determine the boundaries of the concept to suit the desired goals. For example, does the concept of 'civil society' mean the same thing to an American politician as it does to an Iranian college student or a Chinese dissident? And does it mean the same thing today in France as it did during the Revolution of 1848 when Marx and Engels published the Communist Manifesto?

As political ideology changes to reflect societal changes, so does the definition of civil society. It is appropriate to ask if one equates civil society with Western-style political regimes (parliamentary democracy) and within that model whether Norway is a more just society than the US. Does Cuba qualify as a country where civil society can operate toward greater social justice, given that it is one-party state with a command economy, or is it the goal of civil society groups to destroy Cuba's institutions and replace them with American-style ones? With a parliamentary system, Israel would presumably qualify as a civil society, except that it has systematically violated the human rights of the Palestinians who are an occupied people in the Territories.

If civil society could not possibly operate under Nazi and Fascist regimes, nor military or hereditary dictatorships, then there is the assumption that civil society can only operate under a pluralistic system that respects and does not repress the rights of its citizens. But is it not also the case that parliamentary regimes violate civil and human rights? Finally, if civil society is a Western political/ideological instrument to oppose regimes selectively in the rest of the world, in the manner that human rights was in the late 1970s under President Jimmy Carter, can the concept have any credibility as anything other than a propaganda instrument?

Various NGO's have adopted the term 'civil society' to promote their specific agendas, everything from 'sustainable development' to environmental justice, from charitable works to faith-based works. Even the World Bank has a definition of 'civil
society' that entails: "non-governmental and
not-for-profit organizations that have a presence in public life,
expressing the interests and values of their members or others, based on
ethical, cultural, political, scientific, religious or philanthropic
considerations."

Even by its own definition, the question is whether the World Bank and mainstream Western national and international institutions advance of obstruct 'civil society' in practice while using the concept alone to promote globalization under neo-liberalism. Former president George W. Bush argued that civil society demands "good will and respect, fair dealing and forgiveness". The noble rhetoric sounds great, but in domestic and foreign policies he adopted, the principles of 'civil society' that he advocated were absent, replaced by specific narrow interests of small groups of people comprising the political and socioeconomic elites.

A more idealistic definition of 'civil society is that individual sacrifice for the common good and disparate groups of people at the grassroots level can converge to prevent politically and socially unjust acts by governments that adopt coercive measures as a means of social conformity. The reason I call this idealistic is because it is a never ending process never attained. One reason may be that: "Once the state has been founded, there can no longer be any heroes. They come on the scene only in uncivilized conditions," as Hegel argued. This is not to say that those outside the corridors of power can have much impact on imposing change and creating a 'civil society', but only in the case of social revolution that will result in systemic institutional change, rather than endeavoring to reform the system from within and in essence strengthening the system needing reform.PHILOSOPHICAL AND POLITICAL ASPECTS OF CIVIL SOCIETY

Athenian philosophers and statesmen from Solon to
Aristotle debated the issue of convergence between individual interests
and the harmony of the city-state's general welfare. Only through civic
virtue and the containment of hubris could there be a civil society as
opposed to a barbaric, or a chaotic one where disharmony prevailed and where
citizens are neither good nor just, argued ancient Greek thinkers. This
argument that begins with Solon and ends with Aristotle assumes that
citizens will act rationally because they crave social harmony that
reflects nature. In 17th century England, Thomas Hobbes, who
lived during the Civil War, assumed that human beings are not rational,
they do not crave harmony for the state of nature is one of perpetual
conflict and chaos rooted in irrational atomistic proclivities. Order
can only be imposed on society by force from the strong ruler
(Leviathan), thus civil society is not possible from the bottom up.

From John Locke to Karl Marx, and 18th century Enlightenment thinkers in between, the rationalist tradition dominated social and political thought. The assumption that humans are rational and wish to live in harmony rather than a perpetual state of conflict and chaos, found expression throughout the Western world from England's Glorious Revolution to the French Revolution, leaving a rich legacy in the 19th century when there were a number of sociopolitical revolutions. The concept of civil society by the rationalist tradition was equated with classical Liberalism inspired by Locke as well as varieties of Socialism inspired by a number of thinkers from the French Revolution of 1789 to the European revolutions of 1848. Marx and Engels essentially argued 'civil society' is an integral part of the socioeconomic base of state as an instrument representing the capitalist class.

New Left thinkers from Antonio Gramsci to the present rejected classical Marxian view of civil society, arguing that it can be a catalyst to defending people's interests against the capitalist state and market-dominated society. However, the largest impact on the civil society movement globally has been by neo-liberals who use it as a means of spreading their ideology and defending globalization against any progressive or statist oriented (nationalist) regime or movement. Neo-liberals have also used the concept of civil society against social welfare, while all along promoting corporate welfare. Clearly, there has been a vast difference of how civil society organizations have operated in the West versus non-Western countries, but the institutional support in terms of money and political backing emanates from the West trying to superimpose globalization under the neo-liberal model across the entire world.

Civil society as a concept and movement played a role in the US-EU backed Arab Spring uprisings intended to remove authoritarian regimes that were either not enthusiastic supporters of the West or they were not as well integrated economically by refusing to permit open access to Western capital. Civil society also played a role in the Occupy Wall Street movement, as well as in the grassroots protests across southern Europe. Clearly, the way that a young Muslim in the streets of Cairo sees civil society is very different from a neo-liberal professional in Washington, or even a protester against Wall Street.

Under the large umbrella of civil society, we continue to have elements ranging from reactionary to progressive seeking systemic change. The ones with institutional backing will continue to prevail, until such point as the institutional structure is so decadent that civil society movements play a role in undermining it. Given that under hegemonic integration systems, such as the EU where the strong creditor nations impose policy on the debtor EU members, thus undercutting the latter's national sovereignty, is civil society possible in an uneven playing field across the world? For all nations, however, the question remains if civil society is indeed possible against the reality of downward socioeconomic mobility in an increasingly polarized society across the Western world.

Tuesday, 6 November 2012

According to OECD, Greece remains one of the most corrupt countries in the world, largely because the institutional structure, both public and private sectors are immersed in corruption as a way of doing business and conducting public policy. While it is true that Greece ranks better in corruption than most of the former Communist bloc countries, it is also true that approximately one-third of the money that circulates is made illegally.

This does not mean just narcotics and prostitution, but rather that the black market economy that extends from illegal petrol to illegal cigarettes are traded as part of a cash economy that evades the tax system in a country whose fiscal structure is part of the reason for the IMF-EU austerity program. How does corruption operate and what is the nexus between public officials and business people; and are politicians alone to blame, or do businesses also have a role in corruption? The example provided below is from a case in Greece and it illustrates the nexus of corruption. With the caveat that this case is based on local versions of how the city acquired its current rental property, and the case has not been proved in a court of law, the evidence to support its validity is overwhelming. The case also illustrates how businesses and government throughout the country use rental properties as a means of kickbacks and overcharges at a time that there is an abundance of government properties, in many cases vacant.

CORRUPT POLITICIANS AND BUSINESSES
To finance his campaign, a mayor of a Greek city, who is a former
businessman in the construction industry, borrows a large sum from a buildings materials company in order to finance several projects and to finance his mayoral campaign. The mayor offers the company signed checks for which there is no money
in the bank - bad checks that can be held by someone who covers them and expects payment at some point of mutual agreement. The expectation is that the mayor will reciprocate, presumably by purchasing materials from the company once he is in office for city construction projects. Each time the city needs building materials, it goes to the company that is holding the mayor's bad checks. The company overcharges the city and reduces the mayor's personal debt as part of a kickback scheme.

When the time comes for the local government to rent a
large office building in order to house all local services in a single
spot, there was a scramble of where to rent in a market that is depressed
and rents are dropping sharply. The best location for the lowest price
office building is available, but the owner refuses to offer bribes to
the mayor and other local politicians waiting in line. Instead he offers a straight deal with a
long-term lease and low rent. The property owner realizes that the building would stay vacant
for at least five years, if not a decade amid a very deep recession, if the city does not lease it. The
mayor refuses the offer, because there are no accompanying
bribes for a long-term lease.

Another businessman in the foodstuffs import industry, but also a reputed money launderer and a narcotics wholesaler, owns several buildings, one of which could be suitable for the local government offices. The food industry businessman purchases the bad checks from the construction materials businessman and then offers the mayor the option of renting one of his buildings in exchange for reducing the mayor's debt and eventually wiping out. The cost for the rental is twice what the city would have paid if the mayor and other local politicians did not receive a bribe. Moreover, there is the stigma on the part of local politicians of renting from a reputed drug lord.

This is an actual case, and one of the more innocuous ones involving the very complex intertwined relationship between government and private sector. The money trail starts with businessmen, making to rounds to politicians who manage public funds, and ends up back in the pockets of businessmen, after some of the wealth is shared with politicians. I repeat that this case is only one of countless ones involving rental properties by government at all levels. The cost of corruption is much higher cost of products and services, concentration of wealth, and widespread cynicism about how institutions really work behind the veneer of democracy.

Does corruption contribute to existing structural economic and fiscal problems or is it a pretext for IMF-style reforms? Does corruption hurt or benefit the economy? If corruption is an impediment to economic growth, why is it that countries with low-level corruption have just as many if not more problems growing the economy as countries with high levels of private and public sector corruption? Finally, is it realistic to divide public sector corruption from the private sector, or does one reinforce the other?

Corruption, the fraudulent method of doing business in the private and/or public sector, transcends geography and historical periods. Aristotle believed that corruption was an act intended for private benefit against the public good. The philosophers of the Enlightenment era set the standard of what is not corruption when they argued in favor of a merit-based system vs. the old regime immersed in nepotism and rooted in aristocratic privilege. The old regime's political economy of agrarian capitalism, at the head of which there was an absolute monarch dominated public service offices, was anachronistic for it clashed with the interests of mercantile and industrial capitalism that required talented people rooted in a code of professionalism to manage both the public and private sector institutions.

There is no doubt that it helps a company - exporter of products or services like a bank, etc. - to have a friend in government. This was evident in the 19th century across Europe, given that certain companies and banks received contracts and government protection, while others did not. Government made or broke companies, although it was very difficult to determine the degree of influence companies enjoyed in policy making; something that was as true of British companies as it was of German, French or US. In the process, businessmen became wealthy, and along with them politicians, some of whom were actually former businessmen turned politicians.This tradition continued in the 20th century, as it was clear that government had to be entrusted to former businessmen or at least lawyers whose law firms represented large businesses.

The fundamental question is whether corruption by itself is:
1. an impediment to economic growth and stability;
2. undermines social justice;
3. undermines confidence in public and private sector institutions, thus in democracy;
4. passes socioeconomic costs from the current generation to the next;

The answer to all of these questions is a resounding YES. However, this is not to say that even in the total absence of corruption the cyclical nature - expansion and contraction cycles - of the market economy can be avoided with all of their societal consequences. In other words, even if it were possible to eliminate corruption totally, capitalism operating under its own market-oriented laws, presumably unaltered by corrupt bankers, politicians and others, would still cause the problems associated with contracting cycles because capital would remain concentrated.

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